Insurers’ weather predictions need close scrutiny by state regulators

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THE DEREGULATION of the automobile insurance market in Massachusetts in 2008 had a pleasant side effect: lower premiums for homeowner policies, especially for consumers who bundled their auto and home insurance policies with the same company. But those gains are now in danger of blowing away.

Citing the recent surge of tropical storms, tornadoes, and other weather-related events, insurers are asking the state to approve increases of 5 to 20 percent for homeowner insurance. It’s a startling development for residents who are already struggling with price jumps in consumer goods linked to recent hikes in gas prices.

The insurance industry’s desire to pad its bottom line may be more at play here than Mother Nature. State insurance regulators and the attorney general’s office should be prepared to scrutinize each of these rate requests. Generally, rate hike hearings are held only for the Fair Plan, which covers 14 percent of homeowners (often residents of coastal homes) who have been denied coverage by insurance companies. But requests for double-digit rate hikes argue for general public hearings by the state Division of Insurance.

In a November letter to state insurance regulators, the attorney general’s office challenged the industry’s use of “untested and discredited hurricane models’’ to justify “excessive’’ market rates in Massachusetts. Such models, according to the letter, may have led to overcharges in the range of a half billion dollars from 2004 to 2010. One goal of the hearings should be to determine if insurers are using accurate and reasonable weather models to determine rates. Such considerations are especially important on Cape Cod and the islands, where high homeowner insurance rates are largely based on modeled hurricane losses.

Not all of the roughly 60 licensed insurers in the state are seeking significant hikes. And some may be able to justify proposed increases based on their current exposure. But the industry as a whole should have to explain itself. Too often, insurers use opaque accounting practices, referring to “losses’’ that don’t reflect actual payouts to customers. The common practice of the industry is to include estimates of future claims when seeking rate hikes from state regulators. And because the industry is exempt from antitrust laws, there is always a fear that companies might collude to raise their rates and reserves for no sound reason.

Consumers and regulators understand that weather cycles come into play in insurance costs. But they deserve to know whether they’re caught in a different cycle - an artificial upward spiral in premiums.